Customs Fraud is Becoming a Growing Business for Whistleblower Attorneys

The False Claims Act is shining a light on customs fraud and reshaping lawsuits around the country. Whistleblower attorneys are expecting to see an uptick in the customs fraud cases they handle related to importing goods, according to the Wall Street Journal.

Last year, a U.S. appeals-court ruling made room for more whistleblower lawsuits related to the Civil War-era law known as the False Claims Act. The Supreme Court backed the appeals court, agreeing it has broader implications.

How The Law Battles Custom Fraud

Historically, FCA allowed whistleblowers to let the government sue on its own behalf then share whatever funds are collected with the whistleblower. Typically, lawsuits involve allegations that companies received too much money from the government.

The Victaulic ruling looked at when reverse claims may be made. Before 2009, only people who made false statements to the government, in order to blow off a debt, were subject to claims. Now the law encompasses knowingly avoiding paying the debt. Then, in 2016 another ruling said that if a company violates a requirement that imported goods be marked with the country of origin is also subject to False Claims action.

“Until very recently attorneys had not made cases based on the statute’s reverse false claim provisions for this offense,” attorney Tony Munter told the WSJ. “As a result, the industry itself is only now becoming aware of the fact that this law can work to enforce such duties.”

Whistleblower Lawsuits

Attorneys explain that the ruling basically gave a green light to prosecuting importers who don’t mark their goods with the foreign country of origin. One notable example is American Dawn Inc., a textile importer. The company agreed to pay $2.3 million to settle a whistleblower’s complaint that it mislabeled towels in order to pay lower tariff rates.

Ongoing Litigation

So far, only a few customs-related suits have become public. But it seems to be a signal that FCA lawyers and whistleblowers have grounds to combat custom fraud. Right now, according to the WSJ, 600 FCA cases, “ranging from health care to defense fraud,” are filed each year. In 2017 alone, The Justice Department collected $3.4 billion related to whistleblower cases.

False Claims Act cases, which are filed under seal, often remain out of the public eye for years, so it is hard to tell how large an upswing in customs-related cases may be happening. Bob Wagman, a defense lawyer at Bracewell LLP who handles FCA work on government contracts, said he has yet to see an increase.